Mar 31, 2012

Hong Kong - Behind the Arrests of Hong Kong's Property Tycoons

Sun Hung Kai's
owners the highest-profile arrests in 30 years

The March 29 arrest by Hong Kong’s Independent Commission Against
Corruption (ICAC) of a former government chief secretary and two of the Kwok
brothers, among Asia’s most powerful property developers who control the giant
Sun Kung Kai Properties concern, was a stunning development.

The implications are as yet unclear, although it appears to hand Chief
Executive-elect Leung Chun-Ying a golden opportunity to clean up a sector long
believed to be uncomfortably close to the government. Leung is already viewed
with alarm by the property oligarchs. If two of their most stellar members have
been arrested less than a week after Leung was given the job, it gives him
additional cachet with the community to start to clean the stables and seek
ways to moderate housing prices, among the highest in the world.

The former government official, Rafael Hui, not only occupied the
number two post in government for several years until 2007, but he was
particularly close to Chief Executive Donald Tsang. He is the most senior
official ever arrested by the ICAC. The Kwok brothers are the most high profile
arrests of business figures since the Carrian scandal of the early 1980s which
saw the arrest of its boss George Tan and several associates and various
corrupted bankers.

The investigation is said to center on Hui, who allegedly disclosed
confidential information to helpful to Sun Hung Kai pertaining to certain
parcels of land. Former Sun Hung Kai Executive Director Thomas Chan was
arrested on 19 March. Four others have been arrested in connection with the
case, although they are not believed to be either Sun Hung Kai staff or high
level government officials.

At one level the latest arrests are very surprising. The public has
long believed in the existence of collusion between the government, which
controls land supply and development policy, and the top six or so developers
who dominate the property market. Nine of the ten richest people in Hong Kong
are in property. Developers are known to have close links with officials, some
of whom later benefit by retiring early and taking well-paying jobs with the
developers. Land use decisions and sales procedures have often been seen to
favor them at the expense of smaller developers and the public. However,
corruption is easily disguised and hard to prove.

In the Kwok case however, strong leads for the ICAC appear to have come
from a third brother who fell out with his siblings a few years ago and who was
removed from the board. Another director of SHKP was also arrested earlier and
may have provided additional leads. Hui’s past links to the company when he was
in the private sector were no secret, but presumably there is now evidence
either of payments or other advantages in return for information or favorable
decisions when he was Chief Secretary for Administration.

However, it seems more than possible that none of this would have
reached he arrest stage if Donald Tsang himself was not a lame duck, even
facing investigation himself in connection with a large property in neighboring
Shenzhen and acceptance of almost free rides on private yachts and planes from
tycoons. The ICAC reports only to the chief executive who has thus had the
final say in prosecutions leading to suspicions in the past that big fish would
be allowed to go free to avoid wider scandals leaving the ICAC to focus mainly
on low level corruption by petty bureaucrats and police. The ICAC has mostly
been headed by a rising bureaucrat whose career might suffer from stirring up
too much mud.

The arrests thus may be indirectly connected to Tsang’s own weak
position and an ICAC emboldened by the victory of CY Leung in Sunday’s
selection process for the next chief executive. Leung is viewed as
unsympathetic to the developers – as a property surveyor he knows all too well
the potential for manipulating the system.

Hui must have had some inkling of an investigation well before the
selection in which he participated as one of the 1,200 electors. He had run
Tsang’s campaign five years ago and was widely expected to do the same for
Henry Tang. But he backed out at the last minute, leaving the Tang campaign
rudderless.

It remains to be see what charges are laid and whether they can be made
to stick – not easy without smoking guns such as obvious payments or emails
evidence of collusion. But for the public they are at once a shock and an
apparent confirmation of what they already believed. Given revelations over
recent weeks about other sleaze at the top in government – the illegal palace
underground at Henry Tang’s palatial home and Donald Tsang’s links with the
Macau gambling fraternity and a Shenzhen tycoon in particular – the arrests can
only add to pressure for greater transparency in government, in particular
relations between officials and the place where big money is most easily made
with the right connections – property development and megabuck infrastructure
projects. The latter have been proliferating without much economic
justification.

So Leung will start with high expectations that he really will be a new
broom, sweeping away cozy old relationships and re-examining some of the mega
projects. Whether he can fulfill popular expectations is another matter given
how deeply rooted at the vested interests in the status quo.

Asia Sentinel

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